Maximum Mortgage Calculator
How to use this calculator
This calculator allows you to plug in the major variables that impact how much you can afford to borrow: the size of the loan, how much you have for a down payment, the loan’s interest rate and its term in years. Start by adding the figures you have for those factors.
A second drop-down menu will allow you to input your other monthly liabilities, or debts. It’s important to be accurate with these figures because this has a major influence on how much you can actually afford.
The third drop-down gives you space to account for your other monthly expenses, including taxes, insurance or regular fees.
Once you’ve filled in all the numbers, the calculator will show you how much income you’ll need to afford the size of loan you’re looking at, as well as how much your total monthly payment (including your principal, interest, taxes and insurance) would be.
Does this number not match your reality? There are a few factors you can tinker with to figure out what type of loan you can afford, or how you can afford more.
For conforming loans, the Federal Housing Finance Agency (FHFA) sets an annual limit for mortgage amounts that can be acquired by the government-sponsored loans through Fannie Mae and Freddie Mac.
In 2020, that limit was set for $510,400 for single-family homes. In most areas of the country, that’s a fairly generous limit.
Nonconforming loans will typically have maximum purchase price limits as well. With FHA loans, the limit was set for $765,600 for single-family homes.
But these limit guidelines, like the amount your lender will offer you, shouldn’t be taken as permission to borrow as much as possible. It’s good to know what the limits are, but it’s more important to know your personal limits.
The best way to make a mortgage more affordable for you is to look at less expensive homes.
For whatever reason, if you can’t see a way to lower the purchase price, one way to be able to afford taking out a larger loan would be to increase your down payment.
Not only will it lower your principal (and the interest you’ll pay on that principal), but if you put down more than 20%, you can also free yourself from the responsibility of private mortgage insurance (PMI).
PMI can add a few hundred dollars a month to your mortgage payments. Cutting that out of your monthly expenses will free up that cash, allowing you to focus on other financial responsibilities.
The most common loan terms are 15 and 30 years. But you’ll also find loans with terms of 5, 10 and 20 years.
A longer term loan will allow you to pay less principal every month, but the flipside of that is that you will end up paying more in interest on the same loan amount.
The higher your interest rate, the more you’ll end up paying over the life of your loan. To find the lowest interest rate possible, you should shop around and review the offers from a few different lenders.
We have an additional tool to help you find personalized mortgage rates:
All your regular debts, like your student loan, your credit cards and your auto loan, count towards your monthly liabilities. It also includes other regular payments, like child and spousal support or personal loans.
When it comes to your liabilities, some of these may be more fixed than your other expenses. But you’re not without options. We’ll get into how you can potentially lower your monthly liabilities a little further down.
Monthly housing expenses
Most lenders will require you keep your housing expenses down to 28% of your pre-tax income. And with all your other monthly debts and expenses added in, that should account for a maximum of 36% of your income.
Other than your total monthly mortgage payment and its associated costs, your housing expenses will include homeowner’s insurance and your property tax, both of which will be calculated as a set percentage of your home’s value.
And if you’re buying a condo or townhouse with a homeowner’s association (HOA), there will be monthly fees associated with that.
All these costs need to be factored into your monthly budget. And while you can shop around for insurance rates, or properties with lower HOA fees, you’ll have less negotiating room. Your only way to significantly lower these costs is to buy a less expensive home.
How to afford a bigger mortgage
If you’ve run through the calculator a few times and you’re still not satisfied with the results, you have alternative options. There are a few different ways you can further improve your financial standing to afford the mortgage you want.
The more debt you carry and the lower your credit score is, the riskier you’re going to appear to potential lenders. So if you want to make yourself a more attractive borrower, you’ll need to lower your debt-to-income ratio and improve your credit score.
But even with a few adjustments, it’s still crucial you stick to a budget that's realistic for your household income.
Start clearing your debt
When a lender is evaluating your mortgage application, your debt will be a big factor. They’ll use a tool called the debt-to-income ratio to examine how much you owe every month and compare that against your gross (pretax) monthly income.
If your ratio is higher than 43%, lenders will consider you a riskier borrower, significantly lowering your chances of securing a loan with favorable terms, let alone any loan at all.
One way to lower your monthly debt liability is through debt consolidation. By taking out a single, lower-interest loan to pay off your other high-interest debts, you can make paying down what you owe more manageable.
Improve your credit score
Your credit score is another of the most important factors lenders will consider when evaluating you for a mortgage loan.
Details from your credit report are used to come up with a number for your score. There are several things that will impact your credit score, but your credit history is at the top of the list.
If you have a history of not making payments on your credit cards or other debts, that’s going to have a negative impact on your rating.
Bad credit doesn’t have to haunt you forever, though. There are some simple things you can do to raise your credit score. Self Lender offers credit repair loans to help you establish a payment history and get your score up to an acceptable rating.
A better rating will get you access to more favorable interest rates and loan terms, opening up your possibilities as a homebuyer.
Stay within your salary
This is the only factor you shouldn’t try to find a way around when you’re figuring out how much house you can afford.
And just because you can qualify for a mortgage of a certain value, doesn’t mean you should take it. Mortgage lenders will almost always approve you for a larger loan than you can reasonably afford.
Why is that?
Well, the more you borrow, the more you’ll end up paying in interest. That motivates lenders to offer you more than you should take on.
So even if you’re potentially looking at a big boost in your salary down the line, it’s best to just use the income you’re currently earning. A wise borrower runs the numbers and works within their own budget, even if that means borrowing less than what is available to you.
Where to go from here
After you’ve run a few scenarios through the mortgage income calculator, you should have a good idea of what you can afford to take out in a home loan.
And if you were left hoping for a little more, you also now know the steps you can take to improve your financial standing.
When you buy a home, your goal should be to ensure it doesn’t become a financial burden down the road, or force you to live outside of your means from the get-go.
You may not be able to buy your dream home right away, but with a little work, time and investment, you’ll no doubt find the reality of owning a place you can afford is more satisfying than the original dream.
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